SESSION 2 Flashcards
2 forms of compensation for GPs
management fees + carried interest (carry)
the maximum pledge of capital by LPs to a PE fund
committed capital
the amt of capital called by the GPs as investments are identified and funding is required for them
contributed capital
also known as: capital call, takedown, or drawdown
- equals contributed capital minus management fees
- amt of capital that is actually invested by the fund that can grow and produce returns
invested capital
cumulation amt of contributed capital since fund inception
paid in capital
defines the priority of payments betw GPs and LPs
waterfall agreement
GPs not to receive any carried interest until the LPs have been paid back the entirety of their capital contributed to the fund
make whole (whole fund)
determines the amt of carry based of the amt of capital contributed to a specific deal
deal-by-deal
- used to measure income to GPs
- fees paid up front and carry from distributions arise later in the fund life
- assesses the time weighting of the upfront fees and the backend carry
- requires discount rate to complete calculation (assume 15% per yr)
NPV
PE firms have ____ partners and ____ partners
limited ; general
____ partners are institutional and individual investors who provide capital
limited
____ partners manage the fund and may however be directly liable
general
funds operate w ____ ____ (committees) which include LPs as members
advisory boards
GPs usually contribute _% of the fund
1
LP investors do not know precisely how their money will be put to work - GPs investment strategies are often described only in the broadest terms
blind pool
investment vehicle in which assets are not freely transferable since GPs typically invest in illiquid assets
closed end fund
contracts uniformly have a _____ schedule
- capital call for a set amt to be disbursed at closing (most often betw 10-30%)
- typically all funds are drawn down by beta 2nd and 4th anniversaries of the funds formation
take-down
PE partnerships almost always have a ___ ____ of about 10 yrs
finite life
many contracts have provisions for defaulting ___s who fail to meet their capital commitments
- GPs reserve the right to charge pay interest for late payments
- seize the ___’s stake, in whole / in part
- sue the ___
LPs
____ can in some cases transfer their shares to other parties conditional upon approval of the GPs
LPs
